Board structures and the establishment of a risk management committee by Malaysian listed firms |
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Authors: | Puan Yatim |
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Institution: | (1) School of Business Management, Faculty of Economics and Business, Universiti Kebangsaan Malaysia, 43600 Bangi, Selangor, Malaysia |
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Abstract: | The purpose of this study is to examine the association between the establishment of a risk management committee and board
structures of Malaysian listed firms. The study predicts that more independent, expert, and diligent boards are likely to
establish a stand-alone risk management committee. It employs a cross-sectional analysis of 690 firms listed on the Bursa
Malaysia for the financial year ending in 2003. Multiple regression analysis is used to estimate the relationships proposed
in the hypotheses. The study finds a strong support for an association between the establishment of a risk management committee
and strong board structures. Specifically, the result shows that firms with higher proportions of non-executive directors
on boards and firms that separate the positions of chief executive officers and board chairs are likely to set up a stand-alone
risk management committee. Firms with greater board expertise and board diligence are also likely to establish a risk management
committee. These findings suggest that stronger boards demonstrate their commitment to and awareness of improved internal
control environment. Finally, the study also documents a positive and significant association between firm size, complexity
of a firm’s operations, and the use of Big Four audit firms with the establishment of a risk management committee. |
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Keywords: | |
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